India: A glass half full or half empty?

It may be that double-digit growth can only be achieved with greater inclusiveness

Economists have been making progress in building evidence for the possible success of different kinds of policies, such as bank accounts to encourage saving, or monitoring teachers to reduce their classroom absences.

India is managing to grow reasonably quickly, despite global challenges (such as trade wars and high oil prices) and self-inflicted wounds (such as demonetisation and corruption). Continuing to grow at just above 7% a year, with population growth rates having come down, is as good in per capita terms as 8% aggregate growth rates would have been in the past. According to international organisations like the IMF, and global financial analysts such as Bloomberg, growth indicators such as exports, vehicle sales, and demand for bank loans are strong. Bloomberg even refers to “animal spirits” being alive in India. This is the half-full-glass view of India’s economy, one which the ruling coalition will project strongly as the election pre-campaign heats up.

Alternatively, one can point to some degree of fragility in the public finances, a continuing problem of bad debts in the corporate sector, and struggles in the informal sector. Investment rates remain below their peaks earlier in the millennium, foreign direct investment has slowed, and initiatives such as Make in India and Digital India have not yielded obvious and measurable payoffs in economic growth. Growth rates closer to double digits still seem to be needed if India is to achieve significant progress on an East Asia-type economic path, but how to get to those double-digit growth rates is not clear. From this perspective, India’s economic glass is half empty, or maybe worse than that, if growth is insufficient to meet aspirations, and social unrest increases as a result.

It will be interesting to see how the electorate in next year’s national polls weighs the different perspectives on India’s economic progress. Macroeconomic indicators do not necessarily translate into broadbased improvements in perceived well-being, and from those to voting choices, as previous Indian elections have demonstrated. Indeed, Donald Trump, the subject of my last column (‘Lessons of Trump’s America’, FE, August 29; goo.gl/eF4rjF), is a good example of manipulating voter perceptions by playing on their fears and anxieties, mixing economic factors with a kind of tribalism that breeds social divisions. It is possible that emotions can be triggered in ways that swamp the perception of economic realities. The composition of Trump’s cabinet matters as well, leading to narrow and biased perspectives on policy making.

Economists have been making progress in building evidence for the possible success of different kinds of policies, such as bank accounts to encourage saving, or monitoring teachers to reduce their classroom absences. Recently, Jean Dreze has pointed out that evidence is necessary but not sufficient for good policy making: experience of context and what it is to like to be in someone else’s shoes matter for understanding and for policy design.

Recent work by Anjali Adukia of the University of Chicago illustrates the themes of evidence, understanding, and perspective. She researched the impact of school latrines. Well before the toilet-building programme of the current government, the Indian government launched a School Sanitation and Hygiene Education programme in 1999. Adukia analysed data for 2003 from over 1 lakh schools, some of which had latrines built under the programme, and others which didn’t. School latrines had positive impacts on enrolment and educational outcomes, especially for girls, but also for boys. They were good for younger children as well as older ones. Readers should study the evidence in detail at www.ideasforIndia.in—the results are interesting and important.

What is also interesting, though, is Adukia’s revelations on perspective. The children and parents she interviewed (aside from the data she analysed) were very clear on the benefits of school latrines for attendance and educational performance. But of 140, mostly male, headmasters she interviewed, only three admitted that lack of sanitation facilities at their schools was a problem. These people in power were ignorant of what their constituents needed and what they would benefit from. There are larger Indian and even global lessons about gender and class inequalities of this kind of research on access to sanitation facilities in schools. But the even broader lesson is about perspective and power inequalities.

Donald Trump’s government is remarkable in not only turning a blind eye to the real needs of those left behind by globalisation and technological change, but in manipulating the emotions and perceptions of those citizens so that they are unaware of what policies will actually help them. Indian policy making has been a mixed bag in this respect—some politicians and bureaucrats have identified the real needs of the poor, and tried to address them. But many have been closer to the Trumpian ethos, offering trinkets and handouts at election time, or playing on fears, while ignoring the real problems of the disadvantaged.

On this point, also, it is not clear if India’s glass of policy making is half empty or half full. More inclusive growth is more like what East Asia managed, and that went with higher growth in the aggregate. It may be that double-digit growth can only be achieved with greater inclusiveness—understanding the needs of village girls who want to go to school but cannot do so in safety and comfort; small farmers for whom loan waivers are no substitute for more equal treatment from officials, suppliers and traders; or any number of marginalised groups in Indian society.

The Author is Professor of Economics, University of California, Santa Cruz